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Trust-building is critical for Nepal and India

India has become Nepal’s main source of inbound tourists and a major contributor to the country’s tourism industry’s earnings

Trust-building is critical for Nepal and India

This article discusses some troublesome issues between India and Nepal, as well as political and economic development and cooperation. It also recommends developing mutual trust in order to resolve any disagreements through continued communication and diplomacy. In the long run, India will gain from forging the closest political and economic connections with Nepal because this will restrain China’s aspirations for regional expansion. 

Because of their close proximity, India and Nepal share a unique friendship and cooperative relationship characterized by frequent cross-cultural interactions, open borders and close family relationships. Since 1950, India and Nepal have conferred on each other’s Army Chiefs the honorary title of General in recognition of their long-standing military cooperation. With equipment and instruction, India has played a significant role in the Nepali Army’s (NA) modernization

Areas of cooperation 

Cooperation in a number of fields is beneficial to the bilateral relationship as well. India has been a proactive partner in Nepal's development, offering support in various domains such as education, infrastructure, energy, health, water resources, disaster management, rural development, and regional security. They have also collaborated to construct road and rail connections along the border. Indian companies are major investors in many different fields, and they have made significant investments in Nepal. Due to the two nations’ geographical and cultural similarities, India has become one of Nepal’s most significant bilateral donors since the 1950s. According to a Development Cooperation Report, India was ranked fifth out of Nepal’s top five bilateral developing partners for the fiscal year 2015-16. 

Trade, FDI trends 

The 2009 Agreement of Cooperation to Control Unauthorized Trade, the 2009 Treaty of Commerce, and the 1999 Treaty of Transit provide Nepal and India the basis for their bilateral trade and transit.

With a ranking of 11th today, up from 28th in 2014, Nepal is now India’s top export destination. In the fiscal year 2021–2022, it made up 2.34 percent of India’s exports. In actuality, exports to India account for about 22 percent of Nepal’s GDP. The bulk of India’s imports into Nepal include petroleum products, grains, iron and steel, machinery, and auto components. Nepal and India have the biggest trade gap, estimated to be worth $6.1bn in 2020. The bilateral energy trade surpassed
Rs 10.38bn as of mid-November 2022. Power has been Nepal’s principal export to India throughout the last few years.

India is not only Nepal’s main source of foreign investors and economic partners, but it also acts as a transit nation for a vast majority of its trade with other countries. While China has been Nepal’s primary source of foreign direct investment (FDI) since 2015, India is the nation’s major trading partner, the largest source of FDI, and the nation that, in compliance with the Indo-Nepal Transit Treaty, provides transit for almost all of the country’s third-country commerce. China held the second-highest share of FDI stock at 12.7 percent as of mid-July 2022, with India holding the largest stake at 33.5 percent. 

Nepal’s infrastructure and economic growth have benefited greatly from Indian investment. Indian companies have made investments in a wide range of industries, including manufacturing, banking, telecommunications, hydropower and infrastructure development. According to Sunil Kumar Chaudhary, numerous Indian behemoths, including Tata Projects, Dabur, Asian Paints, ITC, Life Insurance Corporation of India, Hindustan Unilever, VSNL, MTNL, State Bank of India and GMR India have made large investments in Nepal.   

Water resources and energy

Communication channels have been developed between India and Nepal to handle issues pertaining to sharing of hydropower resources. India now imports all of Nepal’s hydroelectricity generated with Indian investment; China is no longer the country’s primary hydroelectric investor. India is presently funding projects with a total installed capacity of 4,000 MW. Amid concerns about energy shortages in Nepal, the two countries recently inked a long-term power trade agreement with the goal of importing 10,000 MW of electricity from Nepal in the coming years. 


“Knowledge is just as important to foreign aid as money.” The main purpose of helping is to support nations and communities in producing the knowledge necessary for their own growth (World Bank Policy Research Report, 1998). India has been a major provider of aid in the field of education, and a main survey was carried out in Nepal to evaluate the amount and significance of India’s development aid. Per 2018-19 data, India was the second most popular destination for Nepali students pursuing higher education after Australia. #India has significantly aided in the development of Nepal’s human resources by providing thousands of scholarships and seats for a range of courses in India and Nepal to nationals of Nepal every year.

Disaster management

India sent rescue personnel, supplies and medical support in record time after a terrible earthquake rocked Nepal in 2015. India has provided more than $67m in relief assistance since then. Additionally, it was reported in November 2023 that India has sent emergency relief to Nepal in the form of essential medical and auxiliary supplies after a strong earthquake with a magnitude of 6.4 rocked Jajarkot, Nepal. India provided Nepal with $1bn in financial assistance for the districts of Nuwakot and Gorkha to be rebuilt after the earthquake. This was Indian humanitarian aid and disaster relief in Nepal provided in a swift, sure, and selfless (SSS) manner.

Infra and healthcare

As India’s principal development partner, Nepal started collaborating with India to construct a modern infrastructure. India built Kathmandu’s Gauchar Airport, now known as the Tribhuvan International Airport, in 1954. The focus on improving connectivity between the two nations was recently emphasized by the opening of the Indian railway cargo train from Bathnaha to the Nepal Customs Yard and the Gorakhpur-Butwal Transmission Line.

Additionally, because labor rates and material costs have increased, India has increased the budget for each ‘small development project’ in Nepal from the present amount of Rs 50m to Rs 240m. India has been contributing financial support to a number of local high-impact community development projects (HICDPs) in Nepal, including the construction of hospitals, schools and colleges.  

Culture and tourism

As the birthplace of Shakyamuni Buddha, Lumbini, is in Nepal, Hinduism and Buddhism are closely associated with each other in both nations. The Swami Vivekananda Center for Indian Culture was established in Aug 2007 with the goal of showcasing the best aspects of Indian culture in Kathmandu.

The Ram temple at Ayodhya is currently able to boost religious tourism and pilgrimage between India and Nepal because of historical circumstances. Cultures and programs that promote interpersonal interactions are one of the most significant aspects of bilateral cooperation. Indian and Nepali media and cultural organizations have signed several agreements to boost bilateral ties. 

The tourism industry in Nepal suffered greatly as a result of Covid-19. Over 300,000 Indian tourists arrived in Nepal via air in 2023, according to the Nepal Tourism Board. There are still more Indians traveling by land—more than a million. This has kept business owners busy and given the nation’s tourism industry a much-needed boost. India has thus become Nepal’s main source of inbound tourists and a major contributor to the country’s tourism industry’s earnings. Based on data from the Indian Ministry of Tourism for 2022, Nepali tourists, numbering 1,35,347, have secured a slot in the top 10, securing the seventh position among international visitors to India.

Problems and challenges

The demarcation of the Kalapani-Lipulekh-Limpiadhura area, hiring of Gurkha soldiers under the Indian government’s Agnipath Scheme, sharing of water resources, the Peace and Friendship Treaty of 1950, cross-border trade and transit, uneven trade, red tape, and disputes over water rights are some of the issues that have caused contention between India and Nepal. Furthermore, disputes over water sharing and management of water resources are still challenging issues.

Nepalis are allowed to travel freely across borders and apply for jobs in India under the terms of the 1950 Treaty of Peace and Friendship. A thorough reevaluation of these agreements is required in light of the evolving political and economic landscapes in both nations. Smuggling of arms and ammunition across the porous border, movement of terrorist elements and trade in counterfeit currency pose a serious threat to the security of both countries.

Worryingly, the reliability of connections between India and Nepal is declining. Many ethnic groups in Nepal are hostile toward India because they feel India is interfering too much in Nepali politics and jeopardizing their political sovereignty.

Building mutual trust

Building trust is necessary for diplomatic talks between the two nations to resolve disputes over borders, water, and other matters in an amicable manner. To lessen Chinese influence in Nepal, India must invest more in the country. Investing in most industries—food processing plants, horticulture, mining, IT, and so forth—seems to offer lucrative opportunities, as requested by former Nepali ministers who visited India. 

India will benefit from a cooperative and friendly Nepal as a business and cultural partner. Border disputes and other outstanding issues should be settled through carefully considered methods, given the unstable policies of Nepal’s ruling parties.

Governments of the two countries ought to communicate often in order to enhance collaboration across the board. In this context, burgeoning trade with Nepal is indeed encouraging. The trade ratio between India and Nepal in 2002–03 was 11 percent, which increased to 88 percent in 2018-19, according to the Ministry of Commerce’s statistics and the Government of India. 

Owing to mutual irritants in the last few years, India and Nepal ought to exercise mutual sensitivity and pragmatism in order to revitalize their bilateral relations.

Joshi is an Indian educationalist, scholar, author and writer. Views are personal